Sen. Rick Santorum says he warned 'of a meltdown and a bubble in the housing market'

As Republican presidential candidates battled over mortgage giants Fannie Mae and Freddie Mac in a debate in Jacksonville, Fla., Rick Santorum sought the high ground.

"In 2006, I went out and authored a letter with 24 other senators asking for major reform of Freddie and Fannie, warning of a meltdown and a bubble in the housing market," the former Pennsylvania senator he said. "I stood out, I stood tall and tried to get a reform, and we couldn't do it."

We wondered, did Santorum sign such a letter, "warning of a meltdown and a bubble in the housing market" before its collapse?

The claim

In the Jan. 26, 2012, debate, Fannie and Freddie came up in a question contributed by the public. "How would you phase out Fannie Mae and Freddie Mac? Does the private mortgage industry need additional regulation?"

That degenerated into a mudfest. Newt Gingrich, who once had a consulting contract with Freddie Mac, accused Mitt Romney of holding investments in the government-chartered entities. Romney accused Gingrich of also holding mutual funds that invest in them.

"It seems they both acknowledge they both made money from Fannie and Freddie," he said "Should they return that money?"

Santorum said:

"Well, I would just say, in answer to the question, that as I mentioned last debate, in 2006, I went out and authored a letter with 24 other senators asking for major reform of Freddie and Fannie, warning of a meltdown and a bubble in the housing market. I stood out, I stood tall and tried to get a reform, and we couldn't do it. The reform we'd need is to gradually decrease the amount of mortgage that can be financed by Freddie -- or underwritten by Freddie and Fannie over time, keep reducing that until we get rid of Fannie and Freddie."

The letter

Santorum's campaign didn't answer our request for the letter, but we tracked it down. (Update: Santorum spokesman Matt Beynon sent us a copy about 20 minutes after this item published. It matched the May 5, 2006, letter we found.)

We rated the claim Mostly False, noting, "We give McCain some credit for weighing in on problems surrounding Fannie Mae, even though he got involved after a comprehensive government report issued a loud alarm to anyone watching. However, his attempts to depict those efforts as some sort of early warning that could have lessened the current credit crisis just don't wash. All McCain was talking about then was the potential fallout of accounting troubles in Fannie Mae and Freddie Mac. He didn't say anything about a freewheeling climate among creditors that had major financial institutions becoming badly leveraged on bad loans."

We might say something similar about Santorum's letter.

He did sign, along with 19 others, correspondence on May 6, 2006, to Senate Majority Leader Bill Frist, R-Tenn., and Sen. Richard Shelby, R-Ala., chairman of the Banking, Housing and Urban Affairs Committee. It noted that government-sponsored enterprises Fannie Mae and Freddie Mac — "mammoth financial institutions" — held almost $1.5 trillion of debt.

It warned: "We are concerned that if effective regulatory reform legislation for the housing-finance government sponsored enterprises (GSEs) is not enacted this year, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole. Therefore, we offer you our support in bringing the Federal Housing Enterprise Regulatory Reform Act (S. 190) to the floor and allowing the Senate to debate the merits of this bill, which was passed by the Senate Banking Committee. ...

"Congress has the opportunity to recommit itself to the housing mission of the GSEs while at the same time making sure the GSEs operate in a manner that does not expose our financial system, or taxpayers, to unnecessary risk."

The letter, in other words, warned of the risk Fannie and Freddie might pose to the financial system if they couldn't cover their obligations.

America's housing crisis in many ways functioned the other way around: By the summer of 2008 the effects of a deflating housing bubble — especially foreclosures and mortgage delinquencies — were affecting Fannie and Freddie, and the agencies didn't have enough money to meet their financial obligations. The U.S. government took them over on Sept. 7, 2008. (We've talked to an expert who said that Fannie and Freddie contributed to that bubble — though he acknowledged there were other players — and another who found it "absurd" they would be blamed for the crisis. "They were followers, not leaders," one said. Similarly, Columbia Journalism Review recently highlighted news organizations who exposed "the big lie of the crisis" — blaming Fannie and Freddie for the housing crisis instead of banks.)

So, did the letter warn of "a meltdown and a bubble in the housing market," as Santorum put it? Not so much. It warned not of the danger of a housing bubble but of the danger of poorly regulated housing finance entities.

Santorum, Fannie & Freddie

Want more evidence that it wasn't a housing bubble Santorum was worried about?

Santorum, who served in the Senate from 1995 to 2007 after a stint in the U.S. House, gets credit for supporting the Federal Housing Enterprise Regulatory Reform Act in 2005, the year before senators' letter to their colleagues. The goal of the legislation, according to its official summary, was to set up stronger congressional oversight of Fannie and Freddie and other housing entities by a new Federal Housing Regulatory Agency.

Santorum bucked a strong covert lobbying effort by Freddie Mac to kill the legislation, supporting it in committee — though he was not one of its co-sponsors. (The lobbying effort ultimately kept the bill from reaching the Senate floor.)

But he didn't voice any concern over "a meltdown" or "a bubble" that we saw in news clips, press releases or transcripts of related hearings from 2005 or 2006.

He focused his energy instead on an amendment to strengthen the entities' affordable housing goals. As National Mortgage News reported at the time, "Sen. Santorum supports the concept of an (affordable housing) fund that could pump billions of dollars into the construction and renovation of affordable housing."

In Congress, Sen. Elizabeth Dole, R-N.C., a co-sponsor of the legislation, thanked Santorum in August 2005 "for taking a leadership role in addressing the need for a better focus by Fannie and Freddie on affordable housing."

No word about a housing bubble.

Our ruling

Santorum said he "went out and authored a letter with 24 other senators asking for major reform of Freddie and Fannie, warning of a meltdown and a bubble in the housing market."

Indeed, he signed a letter along with a group of colleagues asking for reform of Freddie Mac and Fannie Mae. But it didn't warn of a meltdown and a bubble in the housing market. And we couldn't find evidence that Santorum voiced that concern in 2005 or 2006 in press releases, transcripts or news clips. Instead, he sponsored a successful amendment of a reform bill to boost the entities' commitment to affordable housing, a very different concern.

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